Negotiation: The Logical Closing Offer

by Mike DApril 30, 2017

Hey, gang, this is Mike with My Real Estate DOJO and today’s lesson is about how to negotiate with a logical home seller. I call this closing, my logical closing and I am going to show you exactly how to address a seller that is very logical. So what do I mean by logical? People that want to see the actual numbers, like engineers and mathematicians.

They are orientated towards that. They are not using their emotions to make a decision. They actually want to see the numbers and they are very logical. And I love that type of individual and I am going to show you exactly step by step what do I do. Alright so when we come across a motivated sellers and they are very logical, I am going to show you what you need to do step by step to get the deal.

The first thing you need to do is think about it like you are playing poker and your opponent is a rookie and you’re a poker player. What you want to do in this case as a seller, instead of having your hands up and negotiating with the seller I want you to imagine that the other person, the seller, is a rookie poker player. What I want you to do is to show your hands to the seller.

Let me put it again. When you negotiate with a logical seller, they are motivated home sellers, I want you to show your hands to the seller. I want the seller to see exactly your moves. How you came up with the numbers, how much you are going to profit, what are all the costs involved in the deal.

The reason I want to do that is because it builds credibility, it builds trust. More importantly, the seller is a logical person and if you’ve already done all the stuff I have asked you to do in my other videos, like how to talk to the seller, how to build rapport, then they’re on your side and they want to sell you the deal, but now the only thing left is ironing out the simple rate rules and that’s what I am going to show you right now.

The first thing you want to do is you want to show the seller your hand and let them see what you are going to make as profit, what all the costs are etc. I am going to actually go into detail in a minute explaining step number 1. The next thing, which is the mission now, is that we don’t want to negotiate with the seller on the asking price or the total price of the property, because that’s just a lot of numbers.

You know, 100 000, 200 000, 175 000 it’s just big number and really we as the investor are not taking home any of that, because there are a lot of fees associated with selling a home, because we have all these closing costs and rehab costs. Simply put, I want us to negotiate with the seller on a profit margin, not the asking price. Pay attention guys, this is very important. For this step, number 2, I want us and the seller to start negotiating about our profit instead of the total price of the home.

This is very important because we are going to be talking about a couple thousand dollars, compared to a couple 100 000 dollars. Because when we buy property that’s fix and flip our profit margin is really not that much and I know on TV it’s so glamorous, fix and flip has so much bling to it, but in reality, it’s like in any other business, you’re profit is 15-20% on fix and flips. It’s really a risky investment, because you’ve got to come up with all the cash, you’ve got to put the money into the rehab, you have to do all the holding.

You’ve got all the ‘what the fuck’ factors, like ‘oh, I fucked up here and I fucked up there’ and etc. What we want to do again is focus on negotiating the profits instead of the asking price. I’m going to show you how to do all this as we go further. So we talked about, number 1, which is we are going to lay our hands open. We talked about number 2, which is very important, which want to talk about our profits, since we already showed what our hand is, we want to negotiate from our profit instead of the asking price or the price of the home.

Now, let’s get knee deep and talk about all the little steps that need to be done to offer a logical seller the numbers, so you can get the deal. Since we talked about showing our hands openly, lets talk about how I am going to address this seller and I am going to break it down step by step. Number 1, I’m going to show the seller the ‘after repair value’ – ARV. If you don’t know what ARV is and how to get that, please watch my other YouTube channels and I have a video about that. Step number 1 is, you are going to show the seller how you go the ARV and what that means, you are going to need the comps of properties that are similar that have sold.

You are going to have to bring into a little folder and let the seller keep a copy of it or show the seller a copy of it where if you tell the seller, “hey your property is worth a 100 and the ARV is...” he or she may think differently and so you want to show them the count to justify what you are saying.

This is what I mean by showing hands. Number 1 is you want to show the seller how did you come up with the ARV and show them the count. Now number 2 thing you want to do is, you want to itemize all the repairs. Don’t tell the seller “Hey, your house needs 20 000 worth of repairs or 10 000 in repairs”, because he/she is going to say, you’re a bunch of bullshit, it’s only going to need 2000, it’s only going to need 3000. The best way to do it is to show them your hand and go item by item.

For example, “ Hey, Mr. Seller, after I walked through your home, your property needs some carpet, so I am going to write it down- carpet, $2000 for example. It’s going to need some paint, price-$1500. It’s going to need a new roof, price-$5000”. What I am saying in a nutshell is, itemize the repairs one by one in front of the seller, show them what it’s going to cost one by one and then actually calculate it, compute it item number 1, number 2 until the last item equals –bang, $1500 “Just like I said Mr. Seller”. So don’t just keep the number $1500 in your head and tell the seller first, because this guy is going to throw them off.

Show them one by one just like you do a math problem in high school in front of your teacher, how you came up with the solution: one by one and then cite the total. Simply put, we are showing this motivated seller our hand, like paying poker, we’re letting them see, so they can learn, because the more we are able to teach them and its logical teaching, they are going to be more leaned towards you. The goal is to start negotiating from the profit, instead of the asking price and that’s what it’s leading up to, okay guys? So now we talked about the ARV, about open handed, we talk the rehab, open handed, show the seller how we came up with that number. Now we’re going to talk about the closing. Closing is going to be two types: buyers closing and then you are going to turn around after rehab or whatever, you are going to turn around to the sellers.

You are as the investor you are going to have to pay two closings. You have to include that into the equation. I actually have a badass video called “Discover the closing causes as a real estate investor”. I go into significant depth, it’s like a 30-minute video item by item of all the things you have to pay for at closing. You better go watch that video, because it is really going to help you negotiate with the seller.

This time I am going to skim through it, highlight a couple of features, but I am not going to go into depth. Make sure you go to my YouTube channel and search for my video “Understanding the closing of real estate”. So now, the number 3 thing is your closing cost, whatever you buy from that motivated seller. You are going to explain to the seller all you have to pay for like title policy, lawyer fees, realtor commission, negotiation that the realtor is going to ask you are going to have inspection, repairs done etc.

You are actually going to put those numbers in there, you are not going to pull these numbers out of a hat. Again, refer back to my other video, I will show what the numbers are, what the percentage is. For example, If you have a $100 000 home, the realtor commission is at 6%- $6000 right there. Look at that video to know what the percentage is and subtract it right there.

You’re going to do an itemized list. You are going to show the seller your hand and let them see what the hell you are doing, so that builds confidence, credibility, that builds trust that you know what the hell you are doing. You are taking the time to educate this person, where no other investor would do. They would come and say “Hey, here’s my other…, here’s the repair cost….Hey, I got to go to another appointment”, because they are always in a hurry. You are not doing that, you are what I call a hero, you are creating a win-win situation for everybody. Alright, guys, point number 3 you’ve got to explain to your seller the closing costs item per item.

Then you are going to go ahead to step number 4. You’re going to explain to the seller your closing costs and whatever you said. You’re going to go item by item: closing cost number 1, closing cost number 2. Now you’re at the next step, which is step number 5. On step number 5 we are talking about the holding cost. The holding cost, again, if you go back to understanding my closing, I really need to explain it, but I need to run through it, you are going to talk about, how you have to pay the loan.

Even if you are paying cash for the property, you still have to figure out how much it is costing you to borrow the money. If you are borrowing the money through a hard money lender, same thing, private money –same thing, from a normal bank- same thing. If you are using your own money, you better include your cost of it, given that it’s your own money guys, its not for free. You are going to have to include that in there. You’re going to have to include insurance, water, electricity, your service etc.

Again, I go in depth in my other video explaining closing costs, so I am not going to go into here and by each one of these items on the holding cost you’re going to put the price on it. I think its going to take me 3 months to solve this property, because I’ve got to rehab in one months and the days on the market show its going to sell two months afterwards in total.

Then you are going to come up with the total for your service and the price of the electricity, the insurance by those three months and then you are going to multiply by the three months and get the actual number of expense items under the holding cost and item by item you are going to include the item and how long you are going to be holding for. That’s how you come up with the actual itemized cost.

What you are going to do is position is to the seller, like this… Hey gang, this is half of the video. If you thought this video provided value, please subscribe and download the remaining of the educational tutorial for just a couple of pennies.

Go out there and take action, if you like these videos, please like, please comment and more importantly subscribe to the remaining video. Don’t forget to watch the other four videos on closing.

The video about emotional closing, deadbeat closing, fairytale closing, the 1-2 closing and go out there and make it happen for yourself guys.